Sks Microfinance Expects More Pain, To Focus On Gold Loans

Expecting pressure on company financials in the near term, SKS Microfinance will start focusing on non-core activities like gold loans and mobile phone financing in places other than Andhra Pradesh, Executive Chairman of the company, Vikram Akula said.

The company suffered a net loss of Rs 69.77 crore in Q4 (FY11) largely due to the situation in Andhra Pradesh where its loan collection has plunged.

It expects the pressure on financials would continue over the next couple of quarters. SKS has outstanding loans of Rs 1,285 crore in Andhra Pradesh alone and it is not able to extend fresh loans.

According to AP Micro Finance Institutions (Regulation of Money Lending) Act- 2011, every loan application has to be approved by the State Government officials.

SKS filed 73,163 loan applications after the new rules were introduced last October of which only 1648 applications were approved by the Government as eligible for loan.

"We have been struck a blow by external forces. Now we are reinventing our company and microfinance. That's what we are going to focus in this year. Reinvention of microfinance will focus on consolidations of existing customer base, diversifying product offerings and continuing to build consensus to resolve issues in Andhra Pradesh," Akula said.

As per Reserve Bank norms, revenues from non-core areas of a microfinance company should not cross 15 per cent.

SKS has plans to start a subsidiary once that limit crosses, said Dilli Raj, CFO, SKS microfinance.

"Today our book is Rs 4,111 crore and roughly we can go up to Rs 600 crore (for non-core business).So in FY12 we don't think we will cross that limit. In FY13, based on the business models we will cross that and look at the step-down subsidiary," Dilli Raj said. .

Dilli Raj said the pressure on financials will continue for one or two quarters going forward.

"Probably there would be near-term pain for a quarter or two. If you are talking medium term it is highly positive. Long term it is absolutely bullish," he said.

He said the company has five branches dealing with gold loans and they will be ramped up to 100 by the end of the current quarter and 500 by the end of the fiscal.

"Gold loan portfolio at the end of the year could be in the range of Rs 150 crore," he hoped.

Raj, however, said the non-core activities will be started in all places but Andhra Pradesh where the company is trying to comply with the State Government's stringent norms for microfinance sector.